A Winning Recipe for Picking Dividend Stocks
Look for stocks –- we pick four of them here -- that boast a powerful combination of generous dividend yield, strong dividend growth and low payout ratio.

There are almost as many dividend-stock-picking strategies as there are dividend stocks. You could go for the dividend “achievers,” which have boosted dividends for at least 10 consecutive years, or the “aristocrats,” which have raised dividends for at least 25 years. You could focus on stocks with the fastest dividend-growth rates, or simply those with today’s highest yields.
But to cook up a portfolio full of healthy, sustainable and growing payouts, you need more ingredients. Recent research suggests that mixing a high dividend yield with strong dividend growth and a low “payout ratio” (the percentage of earnings paid out as dividends) is a winning recipe. Pankaj Patel, managing director at investment-research firm Cirrus Research, says a portfolio of stocks combining those three factors has beaten Standard & Poor’s 500-stock index by 6 percentage points annually over the long haul.
Generous dividends are a lifeline for seniors drawing income from their portfolios—particularly when the 10-year Treasury yields 2.4% and the S&P 500 yields less than 2%. But dividend growth is slowing and payout ratios are climbing, presenting challenges for investors seeking healthy, sustainable payouts.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Look at Dividend Growth
When selecting dividend payers, “the growth of the dividend is the most powerful part of the formula,” as a rising dividend often buoys the share price, says Charlie Farrell, chief executive officer at Northstar Investment Advisors, in Denver. Yet a stretch of sluggish earnings growth has made dividend growth more elusive. In the first quarter of this year, U.S. stocks’ dividend net increases (dividend hikes minus cuts) amounted to $10.9 billion—a 39% decline from the first quarter of 2014, according to Standard & Poor’s.
A low payout ratio provides some insurance against dividend cuts, which can weigh heavily on stock prices. Farrell generally looks for payout ratios of about 50% or less. But with yield-hungry investors agitating for dividends, the ratios have been rising. In the 12 months ending with the third quarter of 2016, for example, 44 companies in the S&P 500 had payout ratios over 100%—the second-highest count in 10 years, according to FactSet.
So which stocks still boast that powerful combination of generous dividend yield, strong dividend growth and low payout ratio? In its research, Cirrus didn’t set any particular thresholds for these factors—the research firm simply looked for the best combination of the three. Here are some of the names that came out on top:
- Cisco Systems (CSCO). In addition to making the switches and routers that connect computers and computer networks, Cisco makes products for faster-growing segments such as wireless, security and data centers. The company started paying a dividend in 2011 and has boosted it every year since.
- Gilead Sciences (GILD). This biotech company is known largely for drugs that treat HIV and Hepatitis C, but it is building a strong pipeline in other areas such as inflammatory diseases. The company initiated its dividend in 2015, and its low 20% payout ratio leaves plenty of room for future growth.
- Home Depot (HD). The home-improvement retailer is benefiting from a strong housing market, and it enjoys some insulation from e-commerce competition thanks to its employees’ specialized knowledge and bulky merchandise that can’t be shipped cheaply. The company has made quarterly payouts for 30 years and in February announced a 29% dividend increase.
- VF Corp (VFC). This apparel maker owns brands such as North Face, Timberland and Lee jeans. Although reliance on department-store sales has hurt growth in recent years, the company is working to boost its direct-to-consumer sales through its own online and brick-and-mortar stores. The company last year raised its dividend 14%.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
RFK Jr. Now Heads HHS: How Medicare and Your Retirement May Change
Robert F. Kennedy, Jr. was confirmed today to head up Medicare. Here are five ways his leadership might change your retirement.
By Maurie Backman Published
-
Are Thousands of Armed IRS Agents Headed to the U.S.-Mexico Border?
IRS Enforcement The Trump administration is considering a controversial move to redeploy some IRS agents.
By Kelley R. Taylor Published
-
Stock Market Today: Markets Turn Lower on Nasty Inflation Surprise
Equities sold off after a hot reading on consumer price inflation pushed back rate cuts to autumn or year-end.
By Dan Burrows Published
-
Stock Market Today: Markets Reflect Elevated Uncertainty
Investors and traders as well as CEOs and central bankers continue to adjust to a new administration in Washington, D.C.
By David Dittman Published
-
Stock Market Today: Nasdaq Leads Monday With Its 190-Point Gain
Market participants took a glass-half-full approach to Trump's latest tariff news.
By Karee Venema Published
-
Stock Market Today: Stocks Swing Lower as Inflation Fears Rise
The latest consumer sentiment data showed near-term inflation expectations rose to their highest level since November 2023.
By Karee Venema Published
-
Stock Market Today: Investors Respond to the Usual Uncertainty
Stocks surged late but the major indexes closed mixed as the search for market leadership continues.
By David Dittman Published
-
Stock Market Today: Stocks Waver as Big Tech Slumps on Spending Concerns
Markets seesawed amid worries over massive costs for artificial intelligence and mixed economic news.
By Dan Burrows Published
-
Stock Market Today: Earnings Speak Louder Than Tariffs
Recent market reaction to Trump administration policy announcements has been "entirely normal."
By David Dittman Published
-
Stock Market Today: Stocks Trim Losses After Trump Tariffs
Stocks slumped at the start of Monday's session after the Trump administration's weekend tariff announcement.
By Karee Venema Published